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The inequality debate: Do financial markets matter?

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  • Azmat, Saad
  • Ayub, Ahmad
  • Brown, Kym
  • Skully, Michael

Abstract

This paper investigates whether economic divergence and wealth inequality could be an outcome of asset price bubbles in financial markets. When returns from financial markets outweigh real returns, shareholders could earn significantly more than workers, causing income inequality. Simulations show that economies with a return on capital higher than the marginal productivity of capital will have a higher steady state and experience greater growth. Using the S&P500 stock market returns data from 1880 to 2010, we show that with high growth and rising financial returns, the wealth inequality between shareholders and workers increases but may decrease during a financial crisis.

Suggested Citation

  • Azmat, Saad & Ayub, Ahmad & Brown, Kym & Skully, Michael, 2020. "The inequality debate: Do financial markets matter?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:beexfi:v:27:y:2020:i:c:s2214635019302667
    DOI: 10.1016/j.jbef.2020.100384
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    Cited by:

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    2. Yang, Xiaoliang & Zhou, Peng, 2022. "Wealth inequality and social mobility: A simulation-based modelling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 307-329.

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    More about this item

    Keywords

    Income inequality; Asset price bubble; Financial crisis; Economic growth;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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